Could Your Home Loan Help Build Wealth? A Data‑Driven Look

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After more than two decades helping people manage their money, I’ve seen that the right strategy in the arsenal of strategies my clients utilise can make a huge difference. One idea getting more attention from Tech leaders I work with is “debt recycling.” It's all for good reasons and they love it but this month I would rather take a data driven approach than rely on my own experience, I wanted to look at what independent researchers, economists and financial experts say about it. Here’s what I found.

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What Is Debt Recycling in Plain English?

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Imagine you have a home loan with interest you can’t claim on your tax (Make your home an investment property). Debt recycling is a way to gradually replace that “bad” debt with “good” debt that may be tax‑deductible.

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Why you do this? Because it doesn't matter how much your home is worth. You are just living in it. It's not wealth, it's a shelter.

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You do this by:

 

1. Paying extra off your mortgage to build up equity.

2. Borrowing that same amount back through and investing it in things like shares or managed funds.

3. Using the investment earnings and tax savings to pay down your mortgage faster.

4. Repeating the cycle over several years.

 

By the end, your home loan has shrunk and you own an investment portfolio that will create passive income for you. Therefore, your home is not just an asset you are sitting on, its an income generating asset. Unlike borrowing extra money, debt recycling doesn’t necessarily increase your overall debt – it rearranges it.

 

What the Researchers Discovered

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A group of economists in the UK and Australia built a detailed scientific model to see how debt recycling works under different market conditions. They found:

 

• Big wins in good times: When the stock market and property values grow steadily (which is the case most of the time- see the graph)

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• Debt recycling can cut decades off a home loan. Their model showed that a 25‑year loan could be cleared in just a few years if both markets perform well.

• Different outcomes: They identified three possible scenarios: a strong success ≈66% (mortgage paid off quickly and investments grow), a weaker success ≈30% (mortgage paid off faster but less spectacular gains) and a failure ≈3% (the strategy falls apart and you may owe more than your house is worth). Which scenario you end up with depends on how the markets perform and how much risk you take on.

• Importance of your starting point: The chances of success are higher if you have plenty of equity in your home and can comfortably afford extra repayments. Without that buffer, you risk overstretching yourself. The bigger amount to start with the more likely you will succeed.

 

Economists also looked at how often Australians tap into their home equity. Surveys by the Reserve Bank of Australia and housing researchers show that 58% of people are withdrawing equity to invest. For those who did, most of the money went into assets (like shares or business ventures), while only a small portion of 8% went to day‑to‑day spending. That suggests Australians are already using strategies similar to debt recycling to build wealth.

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Real‑Life Examples

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To make this concrete, financial advisers share some case studies:

 

• The Matthews family: With a combined income of $230,000 and a $600,000 mortgage, they set up a separate investment loan and invested $15,000 every six months. By putting investment returns and tax savings back into their mortgage, they’re on track to pay off their home loan eight years earlier than planned and build a sizeable investment portfolio.

• The Johnson family: They used $100,000 of home equity to invest and earned about $4,000 per year in investment income plus nearly $2,000 in tax savings. This helped them pay off their mortgage eight years sooner while growing a portfolio worth over $300,000.

• Offset account vs debt recycling: A Brisbane family with $100,000 could put the money in an offset account or use it for debt recycling. The offset saved $90,000 in interest over 15 years, while debt recycling provided $346,000 in total benefits and paid off the mortgage 2.6 years sooner. Of course, debt recycling involved more risk because it relied on investment markets.

 

Among hundreds of Tech Leader's clients I helped, I can confidently say that average outcomes of about eight years off a mortgage and nearly a quarter‑million dollars in additional wealth is generated. That kind of improvement is why this strategy is appealing.

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Key Benefits – and Risks

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Benefits:

 

• Create a passive income stream: Creating an investment portfolio early on will create passive income and gives you freedom of working optional and creating safety net in uncertain economic conditions

• Faster mortgage payoff: Directing investment income and tax savings towards your home loan helps reduce it faster than making extra payments alone.

• Tax advantages: Interest on a loan and other expenses used for investments (accounting fees- advice fee etc) can often be claimed on your tax return, lowering your out‑of‑pocket cost.

• Building wealth at the same time: Instead of waiting until you’re mortgage‑free to invest, you can build an investment portfolio while still paying off your home loan.

 

Risks and considerations:

 

• Market ups and downs: Investments can fall in value or pay lower dividends. Rising interest rates can also reduce or reverse the benefit.

• Higher debt exposure: Even though the debt is more “efficient,” you’re still borrowing to invest. Without adequate cash flow, savings and financial protection, this can be risky.

• Complexity: You must set up your loans and records appropriately (even accountants & mortgage brokers get it wrong).

• Not for everyone: Ideal candidates tend to be younger or middle‑aged, have stable and high incomes, significant home equity, and a long time horizon. People nearing retirement or with uncertain income may be better off sticking to simpler strategies like an offset account.

 

The Bottom Line

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Debt recycling can be a powerful way to turn your home loan from a drag on your finances into a tool for building wealth. Independent studies show that it can work very well when markets are favourable and you have the right financial foundation. But those same studies also warn that without professional guidance, enough equity or if markets turn against you, the strategy could leave you worse off.

 

The key message?

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Get professional advice and be sure it suits your situation. A qualified financial adviser can help you assess your eligibility, structure your loans correctly and choose investments that align with your goals. They can also help you decide whether to use debt recycling, an offset account or a combination of both.

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By grounding the discussion in research and real data, not just by own experience, you can have a clearer picture of when this strategy makes sense. If you’re curious about turning your home loan into a wealth engine, let’s talk about whether debt recycling might be right for you.

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Whenever you're ready, here are a few ways I can help you read on where you stand, the fastest levers to pull, and whether property is your engine or your anchor. No fluff. Just clarity.

 

1. Work 1:1 with me — build a strategic, work-optional financial plan.

2. Listen to my Podcast — real financial strategies for tech pros, no boring jargon.

3. The Wealth Byte Newsletter — quick, no-fluff emails twice a month.

4. Follow me on LinkedIn — over 3,000 tech pros already do.

5. Wealth Bytes - You Tube — bite-sized videos on investing, equity, tax strategies, and building real wealth.

 

 

The key studies referenced in the article are:

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“Phase Transitions in Debt Recycling” – a 2025 peer-reviewed paper by economists Sabrina Aufiero, Preben Forer, Pierpaolo Vivo, Fabio Caccioli, and Silvia Bartolucci (Journal of Economic Dynamics and Control).

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“Housing Equity Withdrawal in Australia” – a 2014 Research & Policy Bulletin from the Australian Housing and Urban Research Institute (AHURI) by Rachel Ong, Therese Jefferson, Siobhan Austen, Marietta Haffner, and Gavin Wood.

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“A Survey of Housing Equity Withdrawal and Injection in Australia” – a 2006 Research Discussion Paper from the Reserve Bank of Australia by Carl Schwartz, Tim Hampton, Christine Lewis, and David Norman.

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“Mortgage Equity Withdrawal in Australia: Recent Trends, Institutional Settings and Perspectives” – a 2015 working paper by Marietta Haffner, Rachel Ong, and Gavin Wood (Delft University of Technology and Curtin University).